Q31: The present value of Rs. 5,000 received at the end of 5 years, discounted at 10 percent, is closest to:
(A) Rs.3,105
(B) Rs.823
(C) Rs.620
(D) Rs.3,40
Answer: (A) Rs.3,105
Explanation: PV = FV / (1+i)^n = 5000 / (1+0.1)^5 ≈ 3104.61
Q32: You are considering buying common stock in Grow On, Inc. The firm paid a dividend of Rs.7.80. Dividends grow at 9% indefinitely. If you want a 24% return, the most you should pay is:
(A) Rs.52.00
(B) Rs.56.68
(C) Rs.32.50
(D) Rs.35.43
Answer: (D) Rs.35.43
Formula: Price = D1 / (r – g) = 7.8(1+0.09)/(0.24-0.09) ≈ 35.43
Q33: What is the additional amount a borrower must pay to compensate for the risk of nonpayment?
(A) Default risk premium
(B) Sovereign risk premium
(C) Market risk premium
(D) Maturity risk premium
Answer: (A) Default risk premium
Q34: Which of the following is the Double Entry Principle?
(A) Assets + Liabilities = Shareholders’ Equity
(B) Assets = Liabilities + Shareholders’ Equity
(C) Liabilities = Assets + Shareholders’ Equity
(D) None of the given options
Answer: (B) Assets = Liabilities + Shareholders’ Equity
Q35: An 8-year annuity due has a PV of Rs.1,000. If interest rate is 5%, the annuity payment is closest to:
(A) Rs.154.73
(B) Rs.147.36
(C) Rs.109.39
(D) Rs.104.72
Answer: (A) Rs.154.73
Formula: PV = r[(1-(1+i)^-n)/i]*(1+i) → r ≈ 154.72
Q36: Which of the following refers to capital budgeting?
(A) Investment in long-term liabilities
(B) Investment in fixed assets
(C) Investment in current assets
(D) Investment in short-term liabilities
Answer: (B) Investment in fixed assets
Q37: Which is NOT a step of Percentage of Sales in Financial Forecasting?
(A) Estimate year-by-year Sales Revenue and Expenses
(B) Estimate Levels of Investment Needs to meet estimated sales
(C) Estimate the Financing Needs
(D) Estimate the retained earnings
Answer: (D) Estimate the retained earnings
Q38: A technique that tells the number of years required to recover initial cash investment:
(A) Payback period
(B) Internal rate of return
(C) Net present value
(D) Profitability index
Answer: (A) Payback period
Q39: With continuous compounding at 8% for 20 years, FV of Rs.20,000 is approximately:
(A) Rs.52,000
(B) Rs.93,219
(C) Rs.99,061
(D) Rs.915,240
Answer: (B) Rs.93,219
Q40: Which capital budgeting technique is NOT a discounted cash flow method?
(A) Payback period
(B) Internal rate of return
(C) Net present value
(D) Profitability index
Answer: (A) Payback period
Q41: A 5-year annuity due has cash flows of Rs.100 per year at 8% interest. FV of this annuity:
(A) (Rs.100)(FVIFA at 8% for 5 periods)
(B) (Rs.100)(FVIFA at 8% for 4 periods)(1.08)
(C) (Rs.100)(FVIFA at 8% for 5 periods)(1.08)
(D) (Rs.100)(FVIFA at 8% for 4 periods) + Rs.100
Answer: (C) (Rs.100)(FVIFA at 8% for 5 periods)(1.08)
Q42: Regarding every journal entry, which is correct?
(A) Sum of Debits = Sum of Credits
(B) Sum of Debits > Sum of Credits
(C) Sum of Debits < Sum of Credits
(D) None of the given options
Answer: (A) Sum of Debits = Sum of Credits
Q43: Statement of cash flows reports a firm’s cash flows in order:
(A) Operating, investing, and financing
(B) Investing, operating, and financing
(C) Financing, operating, and investing
(D) Financing, investing, and operating
Answer: (A) Operating, investing, and financing
Q44: Effective interest rate differs from nominal rate because:
(A) Nominal interest rate ignores compounding
(B) Nominal interest rate includes frequency of compounding
(C) Periodic interest rate ignores inflation
(D) All of the given options
Answer: (A) Nominal interest rate ignores compounding
Q45: Where there is single-period capital rationing, the most sensible investment decision:
(A) Choose all projects with positive NPV
(B) Group projects to allocate funds & select the highest NPV group
(C) Choose project with highest NPV
(D) Calculate IRR and select projects with highest IRR
Answer: (C) Choose project with highest NPV
Q46: Most important criterion in capital budgeting:
(A) Return on investment
(B) Profitability index
(C) Net present value
(D) Payback period
Answer: (C) Net present value
Q47: Main objective of financial accounting:
(A) Profit maximization
(B) Maximization of shareholders’ wealth
(C) To collect accurate, systematic, and timely financial data
(D) All of the given options
Answer: (C) To collect accurate, systematic, and timely financial data
Q48: Nominal interest rate is also known as:
(A) Effective interest rate
(B) Annual percentage rate
(C) Periodic interest rate
(D) Required interest rate
Answer: (B) Annual percentage rate
Q49: Discretionary financing includes:
(A) Current liabilities
(B) Current assets
(C) Fixed assets
(D) Long-term liabilities
Answer: (D) Long-term liabilities
Q50: Why companies invest in projects with negative NPV:
(A) Hidden value in each project
(B) Chance of rapid growth
(C) They have invested a lot
(D) All of the given options
Answer: (D) All of the given options
Q51: Which is NOT considered present value of bond?
(A) Intrinsic value
(B) Market price
(C) Fair price
(D) Theoretical price
Answer: (B) Market price
Q52: Two bonds, A (5 years) & B (6 years), both Rs.1,000 par, interest Rs.120. If YTM drops from 12% to 10%, which changes?
(A) Both increase, A more than B
(B) Both increase, B more than A
(C) Both decrease, A more than B
(D) Both decrease, B more than A
Answer: (B) Both increase, B more than A
Q53: Direct claim securities are:
(A) Value depends on cash flows from underlying assets
(B) Value depends on underlying assets
(C) Do not generate returns for investors
(D) All of the given options
Answer: (A) Value depends on cash flows from underlying assets
Q54: At project termination, which value of project assets is considered?
(A) Salvage value
(B) Book value
(C) Intrinsic value
(D) Fair value
Answer: (A) Salvage value
Q55: Excluded while calculating incremental cash flows:
(A) Depreciation
(B) Sunk cost
(C) Opportunity cost
(D) Non-cash item
Answer: (B) Sunk cost
Q56: Which is NOT true regarding annuity due?
(A) Series of equal cash flows
(B) Also known as deferred annuity
(C) Cash flows occur for specific period
(D) Payments made at start of period
Answer: (B) Also known as deferred annuity
Q57: Book value per share =
(A) Common shareholders’ equity / common shares outstanding
(B) Liquidation value per share
(C) Market value per share
(D) None of the above
Answer: (A) Common shareholders’ equity / common shares outstanding
Q58: Lower grade bonds (CC or C rating) pay:
(A) Default risk premium
(B) Sovereign risk premium
(C) Market risk premium
(D) Maturity risk premium
Answer: (A) Default risk premium
Q59: Risk associated with interest rate uncertainty is:
(A) Default risk premium
(B) Sovereign risk premium
(C) Market risk premium
(D) Maturity risk premium
Answer: (D) Maturity risk premium